The Power of Habit as It Applies to Personal Finance

by Rachel Lane, Contributor Fea Money Financial Literacy School. Photo Credit Unsplash

You may have heard the phrase, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Paraphrasing Aristotle’s wordy passage in the Nicomachean Ethics, Will Durant penned this phrase in a small book entitled, “The Story of Philosophy.”

Everything about life goes back to habits, and it’s all about developing good habits as opposed to bad ones in order to live a productive and happy life. This is especially true for personal finance, and the more we can train ourselves to make good financial decisions, the better off we’ll be!

Let’s look at some ways habits can affect our financial decisions, as well as opportunities to turn those less helpful habits into ones that will foster excellent financial health.

Impulse Buying

If you tend to be the type of person who gives into impulse a lot (remember that we are what we repeatedly do!), there’s a good chance that your financial decisions may be driven by impulse.

Maybe you are well-intentioned and go to the grocery store with a list of five items, but end up buying 50. Or maybe you give in to purchasing a candy bar or magazine at the cash register even though you know they are strategically placed there just to get you to buy them. 

Whatever the case is, you can start taking control of your impulses by changing your habits. It is often said that you have to replace a bad habit with a good habit because otherwise, you’ll be much more likely to default to your bad habit.

Do this with impulse buying! For example, you could start developing the habit of only grabbing a shopping basket—instead of a cart—when you need fewer than 10 items. Training yourself to go for the shopping basket will assist you when you want to purchase those additional items, as you can’t cram tons of stuff into a basket. Plus, once you get into the routine of going for the shopping basket, you’ll train yourself to just get what is on your list.

Another great option is to use the self-checkout machine. Some grocery stores even allow you to use it with a full cart, which I do on a regular basis. You’ll see a lot fewer items to purchase in the areas surrounding self-checkout scanning machines, and you won’t be bored while you’re waiting in line, prompting you to opt for those trinkets and candies. Plus, you’ll have to actually scan the items yourself so that gives you more incentive to just get what you need.

Finally, one trick that requires great discipline, yet will allow you to avoid impulse buying once mastered, is waiting 15 minutes before you purchase anything that is not on your shopping list. If you’re at the mall and you see a cute shirt, try it on and then put it back before walking around the mall for 15 minutes to decide if you really want that shirt. Chances are that you probably won’t feel that intense draw for that shirt anymore.

Experts say that it takes at least 21 days—or three weeks—to develop a habit. You can’t give into your old habits during that time. If you do, you’re just strengthening them and making it harder to replace them with good habits. That’s because you’re teaching yourself that when you try to develop new habits you will eventually give into the old.

Not Saving Money

No matter what the reason is that you don’t save—maybe you didn’t grow up in a family that saved money or maybe you just don’t have a lot of money to save—it’s, unfortunately, a bad habit. Even if you can only save a little bit each month, practicing this good habit can set you up to be in a better financial position.

So, how do you get in the habit of saving money? That could mean having an automatic transfer of a set amount every time you get paid so that you don’t ever see the money. It could mean using an app to round up your purchases and save (or invest!) that extra money. It could even mean writing in saving as a line item in your budget.

You need to make sure that you know yourself well, so you can identify why you weren’t able to save before. If it was too hard for you to remember to save, use an automatic transfer. If saving seemed like too much, start with a smaller amount, and so forth. You’ll need to identify whatever is going to be best for you.

In order to replace bad habits with good ones, you will want to have a good understanding of your reasons for choosing bad habits and how you might be able to replace them with good ones.

Using Your Future to Pay For Your Past

Maybe you took on some unnecessary debt in order to live the life that you wanted to live. Whether it was a loan or credit cards, you don’t want to use your present and your future to pay for past decisions. And the more that you’ve done it before, the more likely it has become habitual.

This is probably one of the hardest personal finance bad habits to break. The most logical step to getting rid of this debt would seem to be refusing to make any discretionary purchases and living as simply as possible. But realistically, that doesn’t work for many people as they find themselves in the same exact position they were before.

Just as someone who takes the time to steadily lose weight, someone who takes the time to consistently and steadily pay off his or her debt will be most likely to succeed because he or she is replacing bad habits with good ones.

First, you need to stop taking on new debt (you may be able to do this by switching to a cash-only system), and then you need to be the tortoise—and not the hare—from Aesop’s fable. Slow and steady will win the race and build the habit.  

In the end, habits are powerful things! They are our defaults, especially when we’re tired, hungry, sad, or mad. If you can train yourself to have amazing personal finance habits, you will start the see what a difference it makes in your financial health. 

Whatever financial decisions you make repeatedly will indicate the type of financial health you have. If you want to be a different person in regards to personal finance, you’ll have to change those habits, and you can start by looking at each bad habit as an opportunity to develop a good one!

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